JP Morgan Asset Management’s (JPMAM) second iteration of its global ETF survey has revealed that close to half (40 per cent) of all client money allocated to ETFs will be in active or smart beta ETFs by 2023.
The firm writes that survey respondents, already regular users of active and smart beta ETFs, believe their clients’ ETF allocations held in passive products will decline to 61 per cent of portfolios over the next three years, while the share of assets in active and smart beta ETFs will continue to grow substantially.
While US based respondents expect active ETFs to rapidly gain an edge in the next few years, making up more than a quarter of ETF allocations by 2023, APAC based respondents predict smart beta products will grow significantly faster in that region.
Cost efficiency, ease of trading and liquidity, diversification and risk management were cited by global respondents as the most important benefits of ETFs. Beyond this, they increasingly viewed active ETFs as a tool to add alpha, or as a means to achieve specific investment objectives, like sustainable investing.
ESG and thematic ETFs were seen as key growth drivers in the near future. Globally, more than half (59 per cent) of respondents predicted strong growth in ESG ETFs by 2023, while 42 per cent believed thematic ETFs would similarly grow over the same period. The trend is most pronounced in EMEA and APAC, the survey found.
JPMAM writes that as ESG gains familiarity across the industry, many investors want to use ESG ETFs to help align their investments with their values and beliefs, according to respondents. ESG ETFs are earmarked for significant expansion by around seven in 10 respondents in EMEA (72 per cent), Asia Pacific (70 per cent) and Latin America (68 per cent).
Respondents indicated a variety of factors were driving client appetite: rising concern over climate change, a growing perception that taking ESG criteria into account can enhance risk management and improve risk-adjusted returns, as well as a preference for a more values-based approach to investment from younger investors. ESG interest may also fuel the future growth of active ETFs, as these structures are well suited for such investment strategies, the firm writes.
Jed Laskowitz, Global Head of Asset Management Solutions at JP Morgan Asset Management, says: “We’re seeing a significant shift in sentiment and in the way investors use ETFs in portfolios. They are exploring their options and increasingly looking to diversify their use of ETFs beyond passive strategies. For example, the current and expected growth in ESG ETFs and active ETFs is proof that these vehicles are likely to play a bigger role across investor portfolios.”
Olivier Paquier, Head of ETF Distribution in EMEA says: “ETFs are increasingly viewed as tools that can help to meet varied financial and investment objectives. We think ETFs will continue to be utilised as cost-efficient, flexible wrappers for a growing range of investment styles and underlying assets, as the technology continues to play a role in the democratisation of investing.”